High asset price volatility alongside low portfolio flows reveals a fundamental trade-off between investor disagreement and price impact: When volatility is high but flows are small, investors must either largely agree with each other or be insensitive to price changes, implying large price impacts of small flows. We formalize this relationship in a price impact bound based on price volatility, flow volatility, and investor agreement. Applying our bound to U.S. equities yields large price impacts, implying that flows are central to understanding price dynamics. Our bounds align with event-study estimates while revealing novel patterns across horizons, assets, and aggregation levels.

We study bonds issued by the European Union (EU) as joint and several liabilities of its member countries and show that they pay higher interest rates than comparably safe and large sovereign issuers. The spread reflects their greater sensitivity to adverse market shocks, which becomes particularly pronounced during periods of monetary tightening. Using novel data, we document that EU bonds have a small investor base because they are excluded from major fixed-income indices due to their lack of formal sovereign status. This exclusion lowers expected prices during crises, making EU bonds unattractive to investors with liquidity needs, such as mutual funds and foreign central banks. Expectations of state-contingent purchases by the European Central Bank (ECB) can substantially compress this premium even when not directed at EU bonds. A demand-based asset pricing framework suggests that the spread would be negligible if the EU were recognized as a fully sovereign issuer and a new safe asset would arise.

Sovereign bond markets are a cornerstone of the financial system, and their functioning is tightly linked to repo markets, where investors finance long positions and source bonds for short sales. We show, theoretically and empirically, that repo prices are set in the cash bond market: when demand for cash bonds exceeds available supply, arbitrageurs accommodate the excess by shorting bonds and borrowing them in the repo market, opening a wedge between the policy and repo

rates, i.e., generating specialness. An elastic supply of collateral, in turn, limits how much of the excess demand is capitalized into bond prices. Using regulatory data covering the universe of repos backed by German sovereign bonds, we identify the final borrowers and lenders of securities and estimate the first demand and supply elasticities for a repo market. Supply, dominated by the public sector, accounts for 87% of the aggregate elasticity. Demand, driven by hedge funds, is strongly inelastic: a 10% increase in borrowing costs reduces their borrowing by only 1%. Despite

being among the most price-elastic investors in cash bond markets, hedge funds are inelastic in repo, as their borrowing sustains relative-value positions whose size is pinned by the preferred-habitat demand they intermediate: their elasticity is inherited from their cash-market counterparties rather than being a primitive. Specialness thus emerges as the equilibrium price of cash-market demand pressure—of which collateral scarcity from central bank purchases is a special case—tying safe-asset

pricing and the transmission of monetary policy to the same imbalances in the cash bond market